Publishers still face problems with 'tech taxes' but this is how to take control

Too little of the marketer’s pound or dollar has been reaching online publishers because intermediaries continue to take a cut.

So-called "tech taxes" have been around for years. A report into programmatic advertising by the World Federation of Advertisers in 2014 estimated that publishers were receiving as little as 40 cents of the marketer’s dollar.

Things came to a head a year ago because the Facebook-Google duopoly was taking virtually all the growth and most other publishers were seeing revenues slow.

The Guardian bought its own inventory through online exchanges as an experiment in October 2016 and found it only received 30p for the £1 it had spent.

Advertisers were also alarmed to discover how money was being siphoned off as it passed through the digital media supply chain in a waterfall-type effect.

Since then, there has been a squeeze on tech taxes and consolidation among ad tech intermediaries but problems remain.

A number of publishers told Campaign they believe they are now receiving in the region of 50p in the £1 that a marketer spends. Even then, another 10p could still be lost to bots and "non-human traffic" (see chart,below).

However, none of these publishers, including some major news organisations, would go on the record about tech taxes because they feared upsetting the big agency groups and other intermediaries. The onus is on brands to act. One former head of an agency trading desk says: "The only people that can force through change are the advertisers but a lot of them have not wanted to engage."

Everyone is taking their clip

Programmatic trading through online exchanges was supposed to lead to efficiencies through automation. The money starts with the media agency, which pushes a request to buy an ad through its trading desk. The bid then goes into an ad network or demand-side platform, which aggregates buyers on an auction basis. Data targeting and viewability fees are often added to ensure the ad is reaching the right audience and is viewed properly.

The DSP plugs into an exchange or supply-side platform, which aggregates the inventory from thousands of publishers and matches it with buyers. Another fee or premium might have to be paid to guarantee brand safety so the ad doesn’t appear in an inappropriate environment. As one executive at an ad tech company puts it: "Everyone is taking their clip."

Agency trading desks acting as principal (buying media at one price and reselling it to clients for a higher amount), opaque auction practices and rebates have added to the impression that intermediaries are making investment decisions to maximise profits, rather than increase efficiency for advertisers.

And it’s not as if these taxes have improved the ecosystem when fake views by bots are rife, brand safety is still not under control, the biggest players can’t agree on joint industry standards and some consumers are turning to ad-blocking.

‘The only reason we have tech taxes is people are lazy and do not understand them’ Scott Moorhead, founder, Aperto One

Awareness is growing

Scott Moorhead, founder of Aperto One (a consultancy for advertisers) and a former head of digital trading for Havas, says it’s a mistake to regard fees in the media supply chain as just taxes: "The only reason we have tech taxes is people are lazy and do not understand them."

Targeting and data fees can be effective for advertisers. "You’ve got to understand the value of each component," Moorhead explains. "Just because you’ve got more money going into working media [by reducing fees] doesn’t mean you’re going to get more value."

Nick Manning, chief strategy officer of Ebiquity, which has investigated the digital media supply chain for the WFA and the US Association of National Advertisers, says: "There is now almost universal knowledge and understanding of the problem [of tech taxes]."

Awareness is not the same as visibility. Experts say it is still almost impossible for anyone in the supply chain to see every step of the process, but pressure is building from brands at the start of the chain and the publishers at the end.

Lawyers have been getting involved. Uber is suing its agency, Fetch, and The Guardian has sued its SSP, Rubicon Project (see box below).

Legal challenges

Uber filed a legal claim against Fetch last month in California, alleging that the mobile agency bought poor quality and "non-existent" ad inventory through exchanges, "fraudulently" claimed credit for app downloads that "happened without a customer ever clicking on an ad" and failed "to pass back" rebates and discounts from networks of publishers. Fetch said the claim is "unsubstantiated" and "completely without merit", and accused Uber of not paying its suppliers.

Meanwhile, The Guardian launched a claim for "breach of contract" and "deceit" against Rubicon Project in London earlier this year.

The newspaper alleged the SSP had received "undisclosed" buyer fees – in addition to the 10% fee it received for selling the paper’s digital inventory. Rubicon Project denied any wrongdoing, saying it did receive buyer fees but maintained it was "entitled to do so" because they were for its real-time bidding service, which was not part of its contract with The Guardian.

Advertisers are taking more control:

Brands, particularly ecommerce companies and airlines, are setting up their own digital trading desks that can connect directly with DSPs – a move that bypasses agencies and potentially saves money by shortening the supply chain. Accenture Interactive is among the companies advising clients on in-house trading desks. "For programmatic buying, you don’t need an agency in the value chain," one ad tech person says. "Come back to me in two years and see how a brand likes running its own trading desk," an agency leader responds.

Advertisers are striking contracts with a DSP while still using a media agency – a move that can ensure the brand has greater visibility and the agency acts as agent, rather than principal. "There is evidence that clients are agreeing to fewer undisclosed deals [with agencies and ad tech companies]," Manning says.

Brands want more control over their data, rather than outsourcing control to agencies, and are setting up their own data management platforms – an issue that will become more important in the wake of GDPR, tougher data regulation that comes into force in 2018.

Advertisers are drawing up "whitelists" of publishers and websites to ensure a brand-safe environment. Procter & Gamble and JP Morgan Chase are among those to have cut the number of sites on which their ads are served.

More transparency needed

One publisher says some intermediaries have moved to a position of being only "transparent about their opacity". Another publisher warns the auction process on both the DSP and SSP sides of the chain remains "murky".

A DSP could receive a number of bids but send only one through at a relatively low price and win the auction. Then the DSP would charge another bidder with a higher price and pocket the difference.

Whitelists can also be manipulated. An agency trading desk might promise a client that it will spend a large percentage of total impressions with a select number of trusted sites but the actual percentage will be far lower. One publisher says it found an agency "was suppressing certain media owners so it could channel money into other deals that deliver rebates".

Media owners could stop selling their inventory through SSPs in the open market and set up private marketplaces but they say there isn’t enough demand.

Google and Facebook are walled gardens but come with their own transparency problems. Google last month refunded some advertisers after its DSP partners, including Google’s own Double Click Bid Manager, ended up serving ads to bots.

Richard Nunn, chief revenue officer of RhythmOne, an ad tech company that has purchased two DSPs, YuMe and Radium One, says: "Having a credible alternative to the duopoly in a brand-safe and efficient marketplace is important."

The entrance of telecom companies such as Verizon and AT&T into the digital ad market could offer the prospect of a simpler, end-to-end solution between buyer and seller.

More choice but fewer intermediaries is key to cleaning up the digital media supply chain.